French luxury group Kering experienced a significant decline in sales during the first quarter, largely due to a decreased demand for its Gucci brand, highlighting the challenges facing its new creative director. Kering, which also comprises Saint Laurent and Bottega Veneta, witnessed a 14% reduction in sales compared to the previous year, amounting to €3.9 billion. This downturn was primarily driven by a 25% fall in comparable sales at Gucci, dropping to €1.6 billion.
Despite being under the control of the billionaire Pinault family, Kering has struggled to rejuvenate its largest brand, with sales declining by double digits for over a year. Gucci had previously thrived with a distinctive bohemian style before the pandemic, but this aesthetic has since lost its appeal. In response, Kering has shuffled its designers, introduced more understated designs, and increased direct sales through its retail stores, reducing reliance on wholesalers.
Luca Solca, an analyst at Bernstein, indicated that Kering’s financial results demonstrated that a Gucci revival has yet to manifest, noting that declining luxury demand could complicate recovery efforts. The recent appointment of Demna Gvasalia as Gucci’s creative director last month led to a sell-off of Kering shares. Analysts have expressed skepticism about whether Demna, formerly at Balenciaga, can successfully revive the brand’s performance.
This attempted recovery is set against a backdrop of diminished luxury demand in crucial markets such as the U.S. and China, with hopes for a U.S.-led recovery dampened by ongoing trade tensions under President Donald Trump. Kering’s chief financial officer, Armelle Poulou, emphasized the group’s commitment to achieving its goals during a call with investors, despite the challenging global environment, forecasting another double-digit sales decline for Gucci in the second quarter.
According to analysts, reviving Gucci could take over a year as it represents two-thirds of Kering’s profit and half its sales. Poulou noted that Kering is focused on cost-cutting measures that do not further impact sales negatively. The group closed 25 Gucci stores in the first quarter, following the closure of 10 in the previous quarter.
The 14% drop in Kering’s first-quarter sales surpassed the predictions of analysts at Citibank and Barclays, who had anticipated declines of 10% and 12% respectively. Kering had to issue several profit warnings last year, and its share value has decreased by 45% over the past 12 months.